Common Questions About ERP Software
By Jackie Aldrich
Perhaps you use an ERP system at your job daily or maybe you’ve just heard of it in passing. Check out the top six questions we often hear about ERP that you might be interested in regardless of whether you are in the industry or not.
1. What is ERP Software?
ERP stands for Enterprise Resource Planning. ERP is the suite of software that businesses use to manage daily operations - everything from accounting and engineering to inventory control and purchasing.
2. What Types of Organizations Use ERP Software?
ERP is used across many industries and in organizations both big and small. However, these are the industries that benefit the most from an ERP system: manufacturing, distribution, construction, healthcare, hospitality, professional services, retail, and nonprofit.
3. What Are Some of the Benefits of ERP Software?
- Total Visibility Into Your Business
- Improved Reporting
- Improved Efficiency
- Better Customer Service
- Data Security
- Real Time Data Collection
- Shorter cycle times and inventory turns
- Labor and Job Cost Tracking
4. What Are the Risks of Implementing ERP Software?
- Not Choosing the Right Fit ERP System
- Key Team Leaders Are Not Available
- Poor Buy In From the Top
- Insufficient Training of End Users
- Lack of Technical Support Infrastructure
5. How Should I Evaluate ERP Systems?
Here's some transparent advice on how to approach your ERP implementation:
First, internally identify your current business limitations and your goals in implementing a new ERP system.
Second, research multiple vendors and find the ones that serve your particular industry or type of manufacturing. Be careful here, most of the large tier one ERP vendors will claim their solutions meet the needs of every possible manufacturing industry. Pay attention to the customer base of the vendor and look at the history of the vendor to see if they really do specialize in your industry or type of manufacturing.
Third, set up demonstrations of each vendor's solution and include a team of your users and decision makers in this process. Have those that participate come to the demos with questions in hand so that they leave each demo with a firm understanding of that vendor's capabilities.
Fourth, ask for pricing on software and implementation services and any customizations. Price matters to any business and this often will eliminate some vendors. Many large vendors will have much higher software and implementation costs than smaller vendors and provide glossy marketing materials to get you hooked on a system that may not be right for your business and may be one that you can't afford. Some vendors' implementation approach includes 5-10 consultants and a one or two year implementation. Our approach is 4-6 months with one primary resource being your implementation consultant/project manager who occasionally brings in a second technical or consulting resource as needed. This lean implementation approach reduces your costs dramatically.
6. How Much Does ERP Software Cost?
Let's talk pricing. This is one of the most common questions we hear but it’s also the hardest to answer. We dig into how much an ERP Software really costs. This is due in part to ERP vendors having a wide range of pricing and options, and organizations having a wide range of needs in terms of users, add-on modules, and services needed. There are multiple deployment options that dictate pricing.
Option 1 - SaaS/Cloud:
SaaS or the cloud option is the first to consider. This is a subscription rental model where you rent licenses but do not own them. The vendor manages the entire infrastructure and there is no need for servers on your end so convenience and simplicity are huge pros in favor of SaaS. You simply access your internet browser to access your ERP system. Your subscription payment includes maintenance costs and upgrades to the latest version of your vendor's ERP system provided you opt in to their upgrade offering when it is presented. Most vendors tier their pricing based on the size of the customer and the optional modules and customizations being purchased. SaaS prices can be as low as $149/user/month for core ERP system access and as high as $199/user/month for the core ERP system, depending on how many users you will need and what optional modules and customizations you are purchasing. Add on modules will tack on additional costs to these monthly user costs so don't forget to include those.
Option 2 - On Premise:
On premise installation is another option. Here, you purchase and own your licenses and are responsible for buying your own servers and maintaining them yourself, typically with an internal IT team. To access software upgrades, FAQ's, a knowledge base, and your vendor's support or response center, you need to pay maintenance which is often a percentage of the list prices of the software you purchased. This maintenance must be paid annually to stay current and have access to valuable upgrades and training information. License costs here can run over $5,000 per license depending on the vendor and as low as $2,000 depending on the number of users you are purchasing, add on modules you are adding, and customizations you are requesting. Many vendors, including Visibility, will provide incentive license trade in offers as well which can lower your license costs dramatically.
Option 3 - Hosted:
Not all ERP vendors offer this, but Visibility does! It's a bit of a hybrid between SaaS and on premise. With the hosted model, you buy and own your licenses but your ERP vendor hosts your licenses and maintains your servers on your behalf so there is no need to purchase servers or maintain them yourself. This provides you with the flexibility to own your licenses and convenience and cost savings of not having to maintain servers and an IT infrastructure. To access software upgrades, FAQ's, a knowledge base, and your vendor's support or response center, you need to pay maintenance which is often a percentage of the list prices of the software you purchased. This maintenance must be paid annually to stay current and have access to valuable upgrades and training information. With the hosted model, if you decide a few years down the road that you want to move your licenses to on premise you have that flexibility. Pricing here would include the same on premise license costs discussed above as well as a hosting fee which typically runs $60 or more/user/month depending on what optional modules are purchased and how many licenses are purchased.
Implementation Costs:
Implementation costs vary depending on the size of your business, the complexity of your business, the amount of data you want converted from your current system into your new system, and the amount of add on modules and customizations you purchase. Whether you choose SaaS, on premise, or the hosted deployment option, you must account for the cost of implementation services.
Here is some ballpark pricing for various user counts. With Visibility, a 10 user on premise implementation with no optional modules or customizations can be completed in 40 days or less at a total software and implementation services cost of less than $100,000. A larger implementation with 30 users and multiple add on modules will typically take around 60 days depending on the factors discussed above and total software and implementation services costs will likely run somewhere around $200,000 or more.
Customizations:
Every manufacturing business is different as is each ERP system and vendor. Some ERP systems are out of the box solutions (i.e. make your business fit their ERP system). Others like Visibility have an out of the box system with robust functionality but also offer an internal development team skilled in customizing our software to meet any of your specific needs. Larger vendors often do not customize their software or outsource it to third parties or overseas where the quality of service diminishes greatly. We do all our own custom development in house at Visibility and have a team who can work with you to ensure that Visibility ERP fits the unique needs of your business, not the other way around.
Conclusion
We hope this list helped answer your most common ERP questions. If not, comment below and let us know what you’d like to see us answer.
